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Widespread sanctions against Russia means Germany must look elsewhere for energy

AILSA CHANG, HOST:

Russia's war with Ukraine and the international sanctions that followed have had massive consequences for the global economy. Case in point, Germany. The country relies on Russia for around half its natural gas, and German companies do billions of dollars' worth of business with both Russia and Ukraine. As NPR's Rob Schmitz reports, the pain is already being felt on the ground.

ROB SCHMITZ, BYLINE: At an iron foundry outside Dusseldorf, a crane holding a 30-ton bucket gently tips it on its side, releasing a torrent of bright yellow molten iron. Waves of heat rise from the bubbling, splattering liquid as it shoots out sparks of magnesium over workers dressed head to toe in silver heat-shielded uniforms. Below them, the glowing magma fills a mold for what will become an iron tile press machine, says Georg Geier, managing director of Siempelkamp, the company that runs his foundry.

GEORG GEIER: It's like 1,300 degrees Celsius. That's what makes our business so energy-intensive.

SCHMITZ: It takes 50 gigawatts of electricity per year to keep Siempelkamp's induction furnaces running, equivalent to the electricity needed to power a town of 20,000 people. Midsize companies like Siempelkamp, known as Mittelstand companies in German, make up the backbone of Germany's economy, employing 60% of the country's workers. And they're highly susceptible to the skyrocketing price of energy caused by Russia's invasion of Ukraine. For years, the price Siempelkamp paid for one megawatt hour was around 40 euros.

GEIER: At the beginning of last week, it was nearly 300 euros. So that means nearly 10 times of what we saw for years and years before.

SCHMITZ: Russia's war in Ukraine and Europe's retaliatory sanctions have highlighted Germany's reliance on Russia.

CLAUDIA KEMFERT: Germany is very dependent on Russian energy.

SCHMITZ: Claudia Kemfert is an energy economist at the German Institute of Economic Research.

KEMFERT: It's not only gas. Over 50% of our natural gas we're importing from Russia, but also coal - 50% of coal. And oil is 36%.

SCHMITZ: She says finding alternatives for Russian coal and oil should be relatively straightforward for Germany. But the problem is Russian gas. Germany receives it via pipelines, and the alternative to that, importing liquefied natural gas, or LNG, from other countries like the U.S. and Qatar, is tricky because Germany does not have any LNG terminals, and it'll take years to build them. The German government has scrambled to sign LNG contracts with Qatar, and Kemfert says that gas will likely flow to Germany from terminals in other parts of Europe. But it probably won't be enough to replace Russian gas.

KEMFERT: So the German government already spent 100 billion for military areas. But right now, I mean, we need also money for the energy transformation in order to become less dependent on fossil fuels.

SCHMITZ: And that could take years.

MICHAEL WISSER: The dependency is so big, it will need time. It's nothing we can do over - or within seconds or within weeks.

SCHMITZ: And in the meantime, German CEOs like Michael Wisser are doing what they can to deal with the new reality. Visser heads the company Wisag, which supplies airports with security, cleaning and catering crews. While many German companies continue to do business with Russia, Wisser went in the opposite direction, announcing that Wisag would cut its business ties, giving up millions of dollars per year.

WISSER: We all in the management thought that we cannot support a regime that is acting like the regime is acting at the moment in the Ukraine.

SCHMITZ: Wisag depends on Russia for less than 2% of its revenue. Wisser says he understands why other German Mittelstand companies with more exposure to Moscow cannot afford to make a decision like this...

(SOUNDBITE OF MACHINE OPERATING)

SCHMITZ: ...Companies like Siempelkamp, which, like much of Germany, relies on Russian energy and Russian raw materials like pig iron to make parts for companies like Tesla, Rolls-Royce and Caterpillar. The price of all of this is now skyrocketing. And if Siempelkamp now pays 10 times more than it used to for electricity, that likely means Tesla is paying them 10 times more, too. That is eventually passed on to consumers, says managing director Georg Geier.

GEIER: That will have direct and severe consequences on value chains, on supply chains all over the world. And of course that will have huge impact on the wealth we have here in Europe. So this is like playing with fire.

SCHMITZ: It's a metaphor Geier knows well. And as Russia's war in Ukraine drags on into another month, he hopes his company can continue to afford keeping its fires burning. Rob Schmitz, NPR News, Krefeld, Germany. Transcript provided by NPR, Copyright NPR.